Relations between Athens and Berlin were already at their lowest ebb since the launch of the euro before this morning’s agreement to commence negotiations on a third bailout programme. The unprecedentedly harsh policy conditionality that is now being imposed on Greece will poison them further, claims Nicholas Spiro, Managing Director Spiro Sovereign Strategy, in this commentary.
Relations between Athens and Berlin were already at their lowest ebb since the launch of the euro before this morning’s agreement to commence negotiations on a third bailout programme. The unprecedentedly harsh policy conditionality that is now being imposed on Greece will poison them further, claims Nicholas Spiro, Managing Director Spiro Sovereign Strategy, in this commentary.
With a political and financial gun to its head, the staunchly anti-austerity government of premier Alexis Tsipras has finally caved in to German-led demands for even fiercer austerity and tougher structural reforms as the price for maintaining Greece’s increasingly fragile membership of the eurozone.
Just a cursory glance at the laundry list of fiscal, administrative and institutional measures which the Greek parliament must approve in the space of 48 hours simply to receive the green light to restart negotiations makes it patently clear that this is, to all intents and purposes, a German-led economic coup d’etat.
Following the failure of Tsipras’s five-month-long challenge of the eurozone’s German-inspired policy regime, Berlin is now insisting on an extremely intrusive form of policy conditionality in Greece in order to make any third bailout more palatable to the Bundestag.
Greece’s politics and economic policies are now being determined by German political considerations. For a Greek government which has gone to great lengths to try to reclaim economic sovereignty, this is a recipe for political disaster.
Several conclusions can be drawn from this morning’s draft agreement.
1. Germany has significantly hardened its stance on eurozone bailouts and, crucially, the politics of economic reform in individual countries. Berlin’s 'temporary Grexit' proposal, although off the table for the time being, speaks volumes about Germany’s determination to face down the anti-austerity challenge posed by Tsipras and make it crystal clear that Berlin will no longer tolerate eurozone governments which are strongly resisting reforms and/or oppose the terms of their membership of the eurozone. While Greece may be an outlier, this is dangerous precedent-setting stuff.
2. The credibility of the creditors’ bailout programme for Greece lies in tatters. While it was already fiscally and economically unsound, it’s now even more politically untenable. This looks and feels like an attempt by Berlin to seek political cover for a Grexit. Germany - and the rest of Greece’s creditors for that matter - has no confidence whatsoever in Greece’s willingness and ability to undertake the reforms being demanded of it.
3. The perils of creating a monetary union without a political and fiscal one are now plain for all to see. The German-led ultimatum to Greece is a reminder, if any were needed, that there’s no appetite whatsoever for the kind of large-scale integration required to shore up Europe’s shaky single currency area.
